How To Fail

Forget about getting everything right. Most people are so consistently wrong that merely avoiding major errors is enough to set you apart from the pack.

I have been saying this for many years. It’s not important being the very smartest one. It’s far more important not to do the stupidest possible action at the most inopportune time. Unfortunately, that’s just what most people end up doing in this domain.

The Dalbar results for 2018 are especially painful to contemplate. The inflation rate was 1.93 percent, so investors would have had to earn that just to tread water. Instead, the average stock fund investor lost 9.42 percent, for a gap of more than 11 percentage points.

How, just how, do you lose so much money in a year like 2018? Just…what?

Though that’s not really fair to regular investors, as the S&P 500 returned -4.75% that year, including dividend reinvestment. In 2018, though my broker makes it difficult to calculate, my return was 5%, approximately. So I beat the market by about 10 percentage points, which is what I try to average year over year. If you can’t do that, you aren’t even trying.

Looking at it more realistically, then, the average investor was -4.67 percentage points vs. the market, which is still absolutely awful. (And that means many investors likely lost a lot more, which is what makes it an average.)

All of this is a scam, but it’s a scam I am good at.